The markets drifted sideways to slightly lower this week on the news that inflation failed to fall in February. In fact, some parts of the economy are heating up, which works against the Federal Reserve’s plan to begin cutting rates in the next few months. While analysts put the probability of a rate cut in June at 60%, there could be further pressure to keep interest rates on hold until the economic data shows signs of weakening. We’re not there yet.
The one piece of data that everyone is paying close attention to these days is the consumer price index (CPI). You undoubtedly wonder how this number seems to have fallen and yet your expenses continue to rise. While I won’t get into the mechanics of how CPI is calculated, know that you are not alone in feeling squeezed. Whether it be auto insurance, home insurance, filling up your gas tank, or simply buying groceries each week, it doesn’t feel like inflation has abated. Forget about the price of a home or a new (or even used) car. And yet consumption remains steady, not despite the rising costs, but perhaps because of the rising costs. As consumers forgo luxuries, they are spending more on everyday necessities. We continue to look for signs that consumers are reaching their limit, but that has not occurred yet.
In company news, we learned this week that Amazon expects to earn $5.2 billion in operating income from third-party fees this year. If you’ve ever wondered why every time you search for a product on Amazon it returns with dozens of Chinese products with thousands of presumably fake reviews, it is because it is a huge moneymaker for Amazon. Third parties pay Amazon fees for fulfillment, warehousing, and shipping in addition to an inbound placement service fee and a low inventory level fee. In other company news, Fisker appears to be on the verge of bankruptcy. The company’s losses are accelerating and without additional capital, it seems unlikely it can continue operations. Unfortunately, talk of bankruptcy will likely hurt sales which will only put the company in a more precarious position. The stock has lost 95% over the last five months. Perhaps this is a cautionary tale. Consolidation in the EV industry seems inevitable going forward.
This next story will hit those of you who love chocolate. Due to heavy rains in West Africa, which supplies two-thirds of the world’s cocoa, the price of cocoa has risen by 32% in the past 30 days and by 143% in the past 12 months. Transco, one of the largest processing plants, said it stopped buying cocoa beans because of the price but continues to operate until supplies run out. Candy-makers like Hershey and Mondelez have struggled to absorb the higher cost without raising prices. Both companies have issued earnings warnings. If you cannot live without chocolate, now may be a good time to stock up.
In closing, I came across a story (and another here) that suggests automakers are sharing consumers’ driving behavior with insurance companies. This sounded like clickbait, but I was genuinely interested if this is in fact happening. As it turns out, it is for some car brands to varying degrees. Among the manufacturers that are sharing data include General Motors, Honda, Kia, and Hyundai. Internet-enabled cars allow for many advantages including navigation, and roadside assistance, but the sneaky part is that the fine print sometimes allows these manufacturers to track and share data with companies such as LexisNexis and Verisk. Among the data collected are hard braking, hard accelerating, speeding over 80 miles an hour, and drive time. When owners accept the user terms and privacy statement, buried in the fine print is their consent to share their data with third parties, despite many of these contracts referencing SiriusXM, not LexisNexis. While the benefit of technology is apparent in safety and convenience, it sometimes has drawbacks. Now you know.